Retail investment innovation in France and Europe: a regulatory perspective (en anglais uniquement)

Retail investment in France, and in Europe, is evolving rapidly, driven by demographic changes, digital distribution channels, innovative financial products and technological change. Retail investors are younger and more digitally connected, but they are also increasingly aware of the need to invest for their future retirement. While technological developments broaden investment opportunities and strategies, they also create new vulnerabilities, and challenge traditional regulatory frameworks. It is not always easy to stick to the traditional “technology neutral” approach, since in some cases, new technologies create specific risks and/or need regulatory adaptations.

In response, both the French Autorité des Marchés Financiers (AMF) and the European Securities and Markets Authority (ESMA) have adopted a pragmatic approach: encouraging innovation while ensuring that investor protection and market integrity remain at the core of regulation.

ELTIFs (European Long-Term Investment Funds) illustrate this trend. ELTIF is a label accessible to Alternative Investment Funds (AIFs) that aims to channel European savings into the real economy. The label also allows AIFs for benefiting from the European marketing passport. This label was first introduced in 2015 and was reviewed in 2023 (ELTIF 2) in order to favor retail participation by relaxing ELTIF rules without compromising investor protection (e.g. enhanced liquidity management). Fractional shares also help democratize access to capital markets by allowing retail investors to invest small amounts, although it is essential that investors clearly understand the nature of what they own and the rights and limitations associated with holding fractional shares.

The evolution of the French approach to crypto-asset-linked products also shows this regulatory philosophy. Following the entry into force of the Markets in Crypto-Assets Regulation (MiCA), the AMF has updated its position considering cryptos as “unusual assets”, to allow the marketing to retail investors of certain crypto ETNs. Such ETNs must be based on the most established crypto-assets under specific conditions, such as delta-one exposure and physical backing. At the same time, the crypto-asset ecosystem is not only expanding through traditional financial instruments such as ETN. Tokenisation of assets is also creating a new way to trade financial instruments. It could notably enable faster, or even near-instant, settlement, disintermediation and simplification of the market value chain, as well as the automation of operations through smart contracts.

Retail investment is increasingly shaped by digital technologies as well. Digital platforms, distributed ledger technologies and artificial intelligence are transforming the retail investment ecosystem by improving accessibility and reducing transaction costs. At the same time, they increase risks of scams and frauds. This technological transformation raises challenges extending well beyond product regulation as it also offers an opportunity to foster competition in the distribution space and to streamline regulatory requirements in this area as part of the simplification and burden reduction effort. 

Artificial Intelligence (AI) further illustrates this evolution. AI is increasingly used by retail investors to obtain information, understand products and prepare investment decisions. AI recent survey conducted by the AMF shows that 11% of French investors are using it already, in a manner that somewhat resembles its use in the health area: they tend to gather information before they go to a traditional financial advisor. However, there is a clear generational divide (people under 35 are significantly more likely to use AI (19% vs. 4% among those aged over 55)). Regulators, particularly the ESMA, therefore promote a risk-based approach, by which investment firms remain responsible for AI-assisted services. Beyond conduct issues, AI also raises operational and cybersecurity concerns, suggesting that future regulatory discussions may increasingly focus on governance frameworks comparable to those already developed under the Digital Operational Resilience Act (DORA).

The challenge ahead will be to maintain a proportionate framework that supports innovation and facilitates investor journey without compromising investor protection, market integrity or operational resilience. Whether addressing crypto-assets, prediction markets or AI-enabled investment services, the common objective remains the same: fostering confidence as the foundation for deeper retail participation in European capital markets.